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Posts Tagged ‘Ben Bernanke’

.. Now that Janet Yellen has been named to lead the Federal Reserve , the global financial markets should factor out any possibility that the Fed will diminish their Quantitative Easing program anytime during her tenure . In fact , financial forecasts should assume that not only is a taper off the table, but that the QE program is now more likely to be perpetuated and expanded . That fact is in and of itself a disaster .

.. Unlike her predecessors, Janet Yellen has never had a youthful dalliance with hawkish monetary ideas. Before taking charge of

In 1935, Cret designed the Seal of the Board of Governors of the Federal Reserve System. (Photo credit: Wikipedia)

the Fed both Alan Greenspan , and to a lesser extent Ben Bernanke , had advocated for the benefits of a strong currency and low inflation . Both had warned of the dangers of overly accommodative policy and unnecessary stimulus. (Both largely abandoned these ideals once they took the reins of power , but their urge to stimulate may have been restrained by a vestigial bias against the excesses of Keynesianism). Janet Yellen , who has been on the liberal/dovish end of the monetary spectrum for her entire professional career, has no such baggage. As a result, we can expect her to never waver in her belief that stimulus is the answer to every economic question . When it is not .

.. Private Sector “stimulus” is the answer to our problems ; government “stimulus is not . Government stimulus means more taxation , more spending , more debt , and a fiscal disaster . Private sector “stimulus,” ie , a favourable investment climate , more favourable tax rates , and lower taxes , is what is needed most of all . The geniuses like Yellen think jobs can be invented out of whole cloth . It does not work that way . You will get demand , but you must have a strong currency , and supply – side investment incentives . The Keynesians have had their day . Their arguments have been a failure , every time they have they have been tried .

.. You look at things now , and we are somewhat lucky . Things overseas are much worse …

.. The Federal Reserve was originally charged with the single mandate of maintaining price stability . Along with it comes the stability of the financial system , and of the currency . Unfortunately , then came Humphrey – Hawkins Full Employment Act in 1977 . In recent decades that mission evolved into a dual mandate of seeking price stability and full employment . Eventually , H – H will have to go . Once it does , then the Fed can dip its toe (sometimes) into the arena of economic management . It does has some levers , but that stuff is best left to the remainder of the Government …

.. I believe that a Yellen – led Fed will return once again to a single mandate , but it will now focus only on employment . That could not be more wrong . Worse yet , it can and will be dangerous . Based on her clear beliefs in the ability of dovish monetary policy to relive human suffering she will be inclined to dig in her heels into the ongoing QE program more than anyone else President Obama may have appointed . This is terrible news for the U.S. dollar and the U.S. economy.

.. For now at least the crisis in Washington has squelched any immediate discussion of a taper in the remaining months of 2013. Any predictions that a Yellen-led Fed will somehow show more resolve towards responsibility in 2014 or 2015 should be looked at as delusional . Unfortunately , it will take a Burns – type collapse to get rid of her (with her resignation) , and then a Republican President can appoint a hard money hardcase to clean up the mess …

.. Well , the Fed met today , and released its policy statement . Better to give it to you , and then tell you what it really means …

Here is the statement the Federal Reserve released Wednesday after its two-day
policy meeting:

Information received since the Federal Open Market
Committee met in July suggests that economic activity has been expanding at a

In 1935, Cret designed the Seal of the Board of Governors of the Federal Reserve System. (Photo credit: Wikipedia)

moderate pace. Some indicators of labor market conditions have shown further
improvement in recent months, but the unemployment rate remains
elevated.

Household spending and business fixed investment advanced, and
the housing sector has been strengthening, but mortgage rates have risen further
and fiscal policy is restraining economic growth. Apart from fluctuations due to
changes in energy prices, inflation has been running below the Committee’s
longer-run objective, but longer-term inflation expectations have remained
stable.

Consistent with its statutory mandate, the Committee seeks to
foster maximum employment and price stability. The Committee expects that, with
appropriate policy accommodation, economic growth will pick up from its recent
pace and the unemployment rate will gradually decline toward levels the
Committee judges consistent with its dual mandate.

The Committee sees the
downside risks to the outlook for the economy and the labor market as having

diminished, on net, since last fall, but the tightening of financial conditions
observed in recent months, if sustained, could slow the pace of improvement in
the economy and labor market.

The Committee recognizes that inflation
persistently below its 2 percent objective could pose risks to economic
performance, but it anticipates that inflation will move back toward its
objective over the medium term.

Taking into account the extent of federal
fiscal retrenchment, the Committee sees the improvement in economic activity and
labor market conditions since it began its asset purchase program a year ago as
consistent with growing underlying strength in the broader
economy.

However, the Committee decided to await more evidence that
progress will be sustained before adjusting the pace of its purchases.
Accordingly, the Committee decided to continue purchasing additional agency
mortgage-backed securities at a pace of $40 billion per month and longer-term
Treasury securities at a pace of $45 billion per month. The Committee is
maintaining its existing policy of reinvesting principal payments from its
holdings of agency debt and agency mortgage-backed securities in agency
mortgage-backed securities and of rolling over maturing Treasury securities at
auction.

Taken together, these actions should maintain downward pressure
on longer-term interest rates, support mortgage markets, and help to make
broader financial conditions more accommodative, which in turn should promote a
stronger economic recovery and help to ensure that inflation, over time, is at
the rate most consistent with the Committee’s dual mandate.

The Committee
will closely monitor incoming information on economic and financial developments
in coming months and will continue its purchases of Treasury and agency
mortgage-backed securities, and employ its other policy tools as appropriate,
until the outlook for the labor market has improved substantially in a context
of price stability.

In judging when to moderate the pace of asset
purchases, the Committee will, at its coming meetings, assess whether incoming
information continues to support the Committee’s expectation of ongoing
improvement in labor market conditions and inflation moving back toward its
longer-run objective. Asset purchases are not on a preset course, and the
Committee’s decisions about their pace will remain contingent on the Committee’s
economic outlook as well as its assessment of the likely efficacy and costs of
such purchases.

To support continued progress toward maximum employment
and price stability, the Committee today reaffirmed its view that a highly
accommodative stance of monetary policy will remain appropriate for a
considerable time after the asset purchase program ends and the economic
recovery strengthens. In particular, the Committee decided to keep the target
range for the federal funds rate at 0 to 1/4 percent and currently anticipates
that this exceptionally low range for the federal funds rate will be appropriate
at least as long as the unemployment rate remains above 6-1/2 percent, inflation
between one and two years ahead is projected to be no more than a half
percentage point above the Committee’s 2 percent longer-run goal, and
longer-term inflation expectations continue to be well anchored.

In
determining how long to maintain a highly accommodative stance of monetary
policy, the Committee will also consider other information, including additional
measures of labor market conditions, indicators of inflation pressures and
inflation expectations, and readings on financial developments. When the
Committee decides to begin to remove policy accommodation, it will take a
balanced approach consistent with its longer-run goals of maximum employment and
inflation of 2 percent.

.. Bad news for POTUS . The lack of any economic progress on the fiscal front is no good for POTUS . He needs for there to be concrete and definitative progress on the budget , and on taxes . Oh , on taxes , it does not mean more tax increases . That would be a definite downer for the economy .

.. The economy needs stimulus . What it needs is private sector stimulus , not government stimulus . In particular , the economy most definitely DOES NOT need more government spending . There has been enough growth in government spending in the last 5 to 6 years as it is . Nothing has been done on entitlements . And the financial markets know it . They expect that something needs to be done , that something must be done , and there is no leadership coming out of the ObamaCrap White House . They also know that they will not get any concrete leadership out of Obama . He is a weak – kneed wus , who has no comprehension of the word ” leadership . ”

.. The economy does not need political hot air . It does not need a President who has a bad case of diarheaa of the mouth , as POTUS seems to have . It needs a good swift kick of investment stimulus . Ideally , it should get a good dose of supply – side tax cuts , especially a sliding – scale of capital gains tax cuts . The investment markets need to understand that the United States is truly open for business . It may take a Republican blowout to get the message fully , if President Obama is truly that dense .

.. I am amazed at how many POTUSes do not understand what a central bank is , and what their job is . Barack Obama is , unfortunately , no exception .

.. A central bank ‘ s job is very simple , yet , equally complex . One of a central bank ‘s simplest jobs is dealing with inflation . Inflation in any economy is a very bad idea . The total abscence of inflation (or deflation) is also a very bad idea . Maintaining it at a low level , and a stable level , would be the best idea .

The other principal task of a central bank is managing the stability of the markets . Oversight , some regulation , and some

Barack Obama (Photo credit: jamesomalley)

intervention come to mind , but they are not exclusively the only things a central bank does .
Another is the stability of the currency . This one is separate from the above .
A modern economy cannnot exist , in reality , without a currency . A modern economy cannot really be successful without a stable currency . Boring with a currency is better than lively .

.. There are some tasks for which a central bank does bear some responsibility . One is government finance . It does not bear the direct burden , as the Treasury Department handles that . Indirectly , it does . If it does not do its other jobs , then the government cannot finance its spending , or its debt . Another is the economy itself . Many millions and tens of millions of actions , each and every second , are the lifeblood of the economy . A central bank can choose to have a great deal of influence over the economy , depending on how it uses the tools that it has at its disposal . The injection of $80 billion a month in cash from the purchase of mortgage – backed securities is a classic example . However , that gravy train is coming to an end . The economy will have to stand on its own two feet .

.. Unfortunately , Barack Obama is clueless about the economy . How it works , what capital is , how it is raised and spend , and a great many things . He has never held a job in the private sector , and has never had to deal with the headaches that government regulations can create , and the expenses that they cause . He is hardly one to champion the cause of “the little guy .”

.. Read thru this moneynews.com piece , and you will understand that we are headed for big trouble in the coming months . The markets will not like whomever POTUS chooses . The markets want and need a hard case . Obama wants a “softie.” …

President Barack Obama says his next Fed chairman should take ordinary people into account when setting monetary policy.

Obama told The New York Times in an interview on the paper’s website Saturday that he wants someone who won’t just work abstractly to keep inflation in check and maintain stability in the markets. He said he wants the next Fed chairman to also promote policies that will help make ordinary people’s lives better.

The president began a series of speeches last week promoting ideas for easing the burdens on the middle class.

Obama is considering replacements for Ben Bernanke, whose term as Fed chairman expires early next year.

Former Obama economic adviser Larry Summers and Janet Yellen, the Fed’s current vice chair, are among the leading candidates for the job.

A senior White House official told The Associated Press on Friday that Obama was not expected to announce a replacement for Bernanke before the fall. The official was not authorized to speak by name about internal White House deliberations over personnel decisions.

.. Amazingly enough , much like a drug addict , the U.S. economy is hooked on the Federal Reserve’s easy money policies.

.. the Fed has pumped trillions of dollars into banks and financial markets since the last financial crisis — first, by buying banks’ troubled real estate loans , and then by purchasing long-term Treasury and mortgage-backed securities to push down mortgage rates.

.. Foolishly , Congress passes a new bill [Dodd – Frank] that has caused the costs of doing business in the banking sector to soar . The effect of it has made the Sarbanes – Oxley bill (securities markets) , passed a decade ago , look puny by comparirison . This rescued Wall Street banks from near death experiences, while federal regulators shuttered more than 480 smaller banks. Unable to cope with more cumbersome regulation, many other regional banks sold out to bigger institutions.

.. The reduction in competion may be nice . It reduces the competition for deposits , and drives down interest rates , from the competitive side . Retired Americans who rely on interest from savings to help pay bills have taken an enormous loss. The result of this has impoverished millions of seniors , and those nearing retirement .

.. Those who are hungry for yields are going ga-ga for junk bonds . Which , by the by , is not the brightest move . Should the Fed permit interest rates to rise, defaults would burn investors in a replay of the financial crisis.

.. The low interest rates have had a predictable effect on the real estate market . It has recovered , but only somewhat . Homebuyers, farmers and speculators, armed with cheap mortgages, have bid up home and agricultural land values, and should the Fed let mortgage rates rise, many would not be able to sell properties as needed and ultimately would default on loans. Rerun time on the banks . Oops .

.. The disappearance of smaller banks has had a drastic effect on the small business sector . Smaller businesses can’t get credit from disappearing regional banks. Smaller real estate developers are selling out to big national builders, which can access the bond market to finance projects. Reduced competition pushes up new home prices, but when cheap money goes away, those mega-builders will be unable to sell options-ladened homes and some will default on their bonds. Talk about the Law of Unintended Consequences !

Like the first crack taken by the dysfunctional personality, easy money made the economy function somewhat better for a brief period. From the beginning of the recovery through September of last year, gross domestic product grew at a modest 2.2 percent. But like the addict, it needs ever-larger doses to stay on task. Last September, the Fed nearly doubled purchases of long-term securities, but growth has since slowed to about 1 percent .